TaxTMI 
TaxTMI 
2009 (5) TMI 594
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....the Act. Before we adjudicate the dispute on the customs duty addition under s. 43B, the facts require to be narrated. 2. The assessee is a limited company and according to the amendment brought into effect from 15th June, 1988 by insertion of sub-s. (3) to s. 207 of the Companies Act, it had to account for the customs duty payable along with the bonded interest on accrual basis in respect of raw materials imported into India to be used for its business activities. In this regard note No. 5 at p. 27 of the printed final accounts of the company are relevant. The provision towards customs duty as on 31st March, 1990 made in the accounts was to the tune of Rs. 4,59,10,736, out of which the assessee company paid before the filing of the return of income to the tune of Rs. 3,34,13,072 leaving a balance of Rs. 1,24,97,664. The customs duty payable was debited to the raw material purchases account and since the goods were not released from the port authorities the balance of stock of raw materials was shown as closing stock as on 31st March, 1990 and the same is also inclusive of the customs duty amount of Rs. 4,59,10,736. Since the assessee did not pay the customs duty and did not get....
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....sp; 15,82,96,112 Carriage inwards 1,48,64,323 ------------ 53,08,00,287 Less: Closing stock 16,11,90,883 ------------ 36,96,09,404 Less: Excise duty set off 5,64,25,969 ------------ Raw material consumed 31,31,83,435  ....
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....s and merits of the case, agreed with the AO that the provisions of s. 43B were applicable as the balance customs duty was neither paid before the end of the accounting period nor was paid before the due date for the filing of the return in the following year. The assessee company was, therefore, unsuccessful before the CIT(A) in the first appeal. It is on account of this reason that the matter stands before us for readjudication. 3. The assessee's counsel Sri Devanathan, vehemently argued that the AO has not understood the accounts in a proper legal perspective and has unnecessarily resorted to the disallowance/addition taking the aid of s. 43B of the Act. According to Shri Devanathan, s. 43B can only be invoked for making addition/disallowance if any assessee claims by way of deduction or allowance any tax, duty, cess, etc., as provided in s. 43B, if the same is not paid within the close of the accounting period at least before the due date for the filing of the return as per Explanation introduced in s. 43B at a later time by the legislature. Since the taxable profits have not been reduced by the assessee company because of non-deduction of the balance customs duty provision,....
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....T vs. Malayala Manorama Co. Ltd. (1993) 115 CTR (Ker) 172 : 114 Taxation 1 (Ker). Reference was also made to the provisions of s. 68 of the Customs Act regarding clearance pf warehouse goods for home consumption. The assessee has also placed copies of the legal opinion at pp. 177 to 180 of the first paper book. Xerox copies of various judgments which would come to the aid of the assessee in the dispute are also placed in the first paper book from pp. 59 to 173. In the end, the assessee's counsel pleaded for reversal of the order of the CIT(A) with a direction to the AO to delete the addition of Rs. 1,24,97,664 made under s. 43B representing balance customs duty payable on the imported goods. 4. The Departmental Representative, on the other hand, repelled the contentions raised by the assessee's counsel and relied upon the reasoning given by the CIT(A) in the impugned order as well as the case brought out by the AO for invoking the provisions of s. 43B and making the impugned addition/disallowance of Rs. 1,24,97,664. The Departmental Representative wanted dismissal of the assessee's appeal. 5. We have heard the representative appearing for the assessee as well as for the Re....
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.... has actually been paid during the previous year on or before the due date as defined in the Explanation below cl. (va) of sub-s. (1) of s. 36. Explanation: For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in cl. (a) or cl. (b) of this section is allowed in computing the income referred to in S. 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him." 8. In this connection it will be useful to refer to the Finance Minister's Speech in connection with the presentation of the Budget for the year 1983-84, relevant portion of which reads as under: "Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund. ESI scheme, for long period of time. For the purpose of their inc....
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....the previous year in which the liability to pay such sum was incurred, be allowed only in computing the income of that previous year in which such sum is actually paid by the assessee." 9A. From an analysis of s. 43B and the Finance Minister's Budget Speech read with the Board's circular explaining the impact of s. 43B, one thing emerges very clear that if an assessee claims any deduction or allowance from its profits in arriving at its taxable income without making payment of the statutory liability or the various expenditures mentioned in that provision without actually making the payment within the accounting period or as per the new Explanation within the due date for filing of the return, then, he will not be entitled to have the benefit of such allowance and the same will be added back again. 10. In the instant case, the assessee provided the customs duty payable amounting; to Rs. 4,59,10,736 to the raw material purchases account and since the imported goods were not released from the bonded warehouse, the same was shown as closing stock on hand as on the close of the accounting period and the value of the closing stock on hand (raw materials) was not at its cost price ....
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....play the provisions of s. 43B particularly to make additions/disallowances. Had the AO read and understood the provisions of s. 43B in a proper legal perspective, we are confident that the addition of Rs. 1,24,97,664 representing the balance customs duty payable would not have been made while computing the income/loss of the assessee company. In our view, therefore, the impugned order of the CIT(A) is not in accordance with law and therefore, cannot be upheld and has to be reversed, which we hereby do. 11. The Allahabad High Court while rejecting reference under s. 256(2) by the CIT, in the case of CIT vs. S.B. Foundry (1990) 185 ITR 555 (All) held at as under: 'The appellate authority has found that the amount in dispute represented the sales-tax realisation of the last month of the previous year relevant to the assessment year in dispute. Under the provisions of sales-tax law, the amount was payable in the next month and the same was actually paid in the month of November, 1983. The addition is on the finding that the assessee had not claimed the disputed amount as deduction nor has it charged that amount to the P&L a/c. On this factual position, the Tribunal held that ther....
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.... recorded above, we have little doubt in our mind that the addition made by the AO of Rs. 1,24,97,664 and confirmed by the CIT(A) in first appeal is wholly erroneous and out of the purview and scope of s. 43B of the Act. The CIT(A) ought to have directed the deletion of the same, since he failed to do so, we hereby order and direct the AO to delete the addition of Rs. 1,24,97,664 representing the balance customs duty payable on the imported goods lying in the bonded warehouse. 15. Since we are holding that s. 43B was not applicable for making the impugned addition, we are not embarking upon any discussion and refraining from giving any decision on the applicability of ss. 12, 15 and s. 68 of the Customs Act and the various case laws relied upon by the assessee's counsel. We think it will be redundant in view of our decision to analyse those provisions of Customs Act with reference to the case laws relied upon by the assessee's counsel. 16. No other point was urged or argued as recorded by us above. 17. In the result the assessee's appeal is allowed. P.S. KALSIAN, A.M: 30th Sept., 1997  ....
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....sp; duty payment accounted through purchase register May -do- 47,57,100 June -do- 47,02,852 July -do- 97,02,001 August -do- 1,14,16,021 Septemb....
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....sp; 4,59,10,736 ------------ 15,82,96,112 ------------ This customs duty of Rs. 4,59,10,736 shown in the above-mentioned figures also forms part of the value of the closing stock (Rs. 16,11,80,883 as per details furnished by the assessee. 5.4 In view of the conduct of the assessee to treat the custo....
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....accounting year ending 31st March, 1990, showing customs duty as included in the cost of the raw material. The argument of the learned counsel for the assessee run counter to the method of accounting followed by the assessee. If the liability for customs duty has not accrued, then why the entries in the books of accounts are not corrected before placing the accounts before the shareholders in the annual general meeting held on 22nd Oct., 1990. The assessee has correctly made a provision of customs duty of Rs. 4,59,10,756 in the books of accounts and included the same in the cost of goods as mentioned before. 5.6 In the case of Chengalrayan Co-operative Sugar Mills Ltd. vs. Dy. CIT (ITA Nos. 960 and 961/Mad/1991) for the asst. yrs. 1986-87 and 1987788. dt. 17th Sept., 1997 [reported at (1998) 60 TTJ (Mad) 734-Ed.], to which both of us were parties, the issue was whether the amount of Rs. 1,24,05,255 representing receipt on account of sale of sugar and excise duty is profit and gains of business and liable to be included in the total income of the assessee. The assessee has shown this amount in the total income in its annual report presented to the shareholders. In this connection....
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.... liability has not accrued as on 31st March, 1990, then the AO could not have allowed deduction for the customs duty of Rs. 3,34,13,072 under the proviso to s. 43B because the customs duty was paid after the end of the accounting year and could not have been relevant for the asst. yr. 1990-91. Now after taking the benefit of proviso to s. 43B and after having the benefit of deduction of Rs. 3,34,13,072 under the proviso to s. 43B, the assessee has no case to say that there was no liability to customs duty and that customs duty has not been claimed deduction out of profits and gains of its business. The assessee, by having the benefit of deduction of Rs. 3,34,13,072 under the proviso to s. 43B but of total customs duty of Rs. 4,59,10,736 on accrual basis, cannot turn around and say that liability of customs duty had not arisen for obtaining certain other advantages. The doctrine of approbate and reprobate (as discussed in the preceding paras), is applicable to an assessee. For the purpose of availing the benefit under s. 43B itself the assessee has enjoyed the benefit of deduction of Rs. 3,34,13,072 out of total customs duty of Rs. 4,59,10,736 on accrual basis, and now after enjoyin....
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....s carrying on money-lending business. She declared an income of Rs. 1,499 from money-lending. The AO called for her accounts and it was found that they were maintained on the mercantile system and that the interest account showed a credit of Rs. 31,081. Although this interest had not been realised, the assessee had debited it in her books to the accounts of the debtors, credited it to the interest account and then transferred it to her own personal account. On these facts, the AO held that s. 13 of the Indian IT Act, 1922 (corresponding to s. 145 of the IT Act, 1961) required him to take this sum of Rs. 31,081 as the assessee's gross money-lending income and after allowing Rs. 6,854 as bad debts and Rs. 828 as expenses he assessed the assessee on Rs. 23,400. Her appeal against the assessment was rejected and the assessee's case was referred to the Hon'ble Allahabad High Court. It was argued before their Lordships that s. 13 cannot mean that something is to be taxed which the assessee has never received and, in whole or in part, may never receive. It was also urged that interest which had not been realised by the assessee in the accounting year could not be taken into account for th....
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....as High Court came to the conclusion that the adoption by the assessee of the mercantile method of accounting was conclusive against him upon the 'computability'-of the sum in question of Indian income-tax. 7.2 The above-mentioned decisions of the Hon'ble Allahabad High Court and the Full Bench of the Madras High Court clearly laid down that the AO as well as the assessee is bound by the statutory provisions of s. 145 of the IT Act, 1961 and the mercantile system of accounting adopted by an assessee is binding on him also. In the case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC), the Hon'ble Supreme Court considered whether interest on 'sticky' advances has accrued according to the mercantile method of accounting when the assessee had debited the respective parties with the interest. In this case it was argued before the AO, the Tribunal and the High Court that having regard to the bad and deteriorating/financial condition of the parties concern as well as the history of their accounts, the recovery of even the principal amounts of the debts had become improbable and doubtful and as such the interest thereon, though debited to the respecti....
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.... binding on the AO also unless and until the AO came to the conclusion that the method of accounting is such that income cannot be properly deduced therefrom. 8. Since in the present case, the AO had accepted the mercantile system of accounting followed by the assessee and has also allowed deduction of Rs. 3,34,13,072 (out of Rs. 4,59,10,736) on the ground that liability to pay customs duty of Rs. 4,59,10,736 has accrued on 31st March, 1990 by accepting the system of accounting followed by the assessee. The decision of the AO in disallowing the balance of Rs. 1,24,97,664 is binding on the assessee as the said disallowance is based on the provisions of s. 43B of the IT Act, 1961 and the system of accounting followed by the assessee. When the AO has performed his duty in accordance with the provisions of the statute, no mistake can be attributed to his order in disallowing the amount of Rs. 1,24,97,664. It is not the duty of the Tribunal to disturb the method of accounting followed by the assessee when that method of accounting has been accepted by the AO under s. 145(1) of the IT Act, 1961 and when the method of accounting followed by the assessee is binding on the assessee also.....
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....e amount of Rs. 1,24,96,664 which was disallowed by the AO on the ground that this amount had not been paid even before the due date for filing the return of income. 9. Lastly, I may mention that if the assessee's claim is accepted, then the provisions of s. 43B as well as the provisions of s. 145 would completely become meaningless or redundant. The principle of statutory construction is well settled that no statute should be interpreted in such a manner as to render any provision completely meaningless or redundant Addl. CIT vs. Bhagat Swamp Charanjit Singh & Co. (1981) 23 CTR (Del) 69 : (1982) 133 ITR 13 (Del). 10. Briefly stated. the claim of the assessee is not admissible due to the following reasons: (1) The assessee has claimed deduction of Rs. 4,59,10,736 by debiting this amount of customs duty on accrual basis to the purchase of raw material out of which consumption of raw material was claimed deduction by the assessee from its total income. (2) The assessee has enjoyed the benefit of deduction of Rs. 3,34,13,072 out of the total customs duty liability of Rs. 4,59,10,736 under proviso to s. 43B. When the provisions of s. 43B have been applied to the customs dut....
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....nces of the case, the AO was justified in making an addition under s. 43B of the IT Act, of Rs. 1,24,97,664 being balance customs duty on uncleared imported goods though the said amount was neither claimed as deduction or allowance in arriving at the taxable income?" 2. In this case, the difference between me and my learned Brother is on two points. The assessee debited Rs. 4,59,10,736 being customs duty to purchase account on accrual basis which means that the assessee has claimed deduction for customs duty out of profit and gains of business. But the AO allowed deduction of Rs. 3,34,13,072 out of customs duty of Rs. 4,59,10,736 because he found that this amount of customs duty was paid by the assessee before the due date for filing the return of income, though after the end of the accounting year relevant to asst. yr. 1990-91. The balance customs duty of Rs. 1,24,97,664 (Rs. 4,59,10,736-Rs. 3,34,13,072) was disallowed by the AO. Since the customs duty of Rs. 4,59,10,736 was debited to purchase account, obviously the assessee has taken into consideration this amount of customs duty as the value of closing stock. Now having regards to the facts of the case and method of accounti....
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.... by JM: "Whether, on the facts and in the circumstances of the case, the AO was justified in making an addition under s. 43B of the IT Act, of Rs. 1,24,97,664 being balance customs duty on uncleared imported goods though the said amount was neither claimed as deduction or allowance in arriving at the taxable income?" Questions for reference by AM: "1. Whether, having regard to the fact that the assessee has debited customs duty of Rs. 4,59,10,736 to purchase account on accrual basis and was allowed deduction of Rs. 3,34,13,072 out of customs duty of Rs. 4,59,10,736 on the basis that customs duty of Rs. 4,59,10,736 was otherwise allowable, it could be said that the assessee had claimed deduction of Rs. 1,24,97,664 (Rs. 4,59,10,736-Rs. 3,34,13,072) out of the profits and gains of business in accordance with the method of accounting followed by it? and; 2. If so, whether, the assessee is entitled to deduction of customs duty of Rs. 1,24,97,664 under s. 43B out of total customs duty of Rs. 4,59,10,736 which was payable by it on accrual basis but was not paid even before the due date for furnishing the return of income under s. 139(1) of the Act?" 2. There was difference ....
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....nbsp; 53,08,00,287 Less: Stock as on 31-3-1990 16,11,90,883 ------------ 36,96,09,404 Less: Excise duty 5,64,25,969 ------------ 31,31,83,435" ------------ 4. The figure of Rs. 31,31,83,435 was the deduction claimed in the P&L a/c. The....
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.... the return of income Rs. 3,34,13,072 ---------------- Balance disallowable Rs. 1,24,97,664" ---------------- 7. There is no dispute on the point of accrual of liability. The assessee admits that the liability accrued during the year. The assessee itself had included the total customs duty provision amounting to Rs. 4,59,10,736 in the cost of raw material. The fact that the element of customs duty !Vas made part of closing stock, was not consid....
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....sdiction of the AO as well as the investment allowance claimed and advanced the argument only on the dispute relating to the customs duty addition by the AO in terms of s. 43B of the IT Act, 1961. Accordingly, this Tribunal was to adjudicate only one issue, regarding the addition of customs duty under s. 43B of the IT Act, 1961. 3. The brief facts of the case are that the assessee company is a public limited company incorporated under the Companies Act, 1956 engaged in manufacturing and selling of television sets and audio equipments. For the asst. yr. 1990-91, for which the year ended by 31st March, 1990 the assessee had filed a return on 31st Dec., 1990 disclosing a loss of Rs. 35,39,813. However, the assessee admitted the income of Rs. 6,53,087 under s. 115J of the IT Act. The said return was processed under s. 143(1)(a) on 20th Feb., 1992. While scrutinizing the accounts, the AO found that the assessee company had changed the system of accounting in respect of customs duty and bond interest. All along the assessee company had been accounting customs duty and bond interest in respect of materials lying at customs bonded warehouse at the time of removal of materials from the b....
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....rding to the President, there is a difference of opinion while identifying the differences between the Members of the Division Bench. As there is no uniformity even in identifying the points the President has formulated the points of difference between the Division Bench Members and decided the case on merits. Aggrieved by the same, the assessee has filed Writ Petn. No. 7060 of 2000 before the Hon'ble High Court for challenging the order of the Third Member. 4. The Hon'ble High Court set aside the order of the Third Member dt. 3rd Dec., 1999 and remitted the matter to this Tribunal with the direction to rehear only on the difference of opinion referred to by the Members of the Division Bench vide decision dt. 9th April. 2008 [reported as Dynavision Ltd. vs. ITAT & Ors. (2008) 217 CTR (Mad) 153-Ed.]. The operating part of the Hon'ble High Court is as under: "We are in agreement with the view taken by the Allahabad High Court judgment. Following the Division Bench judgment of Madras High Court and also considering the view of the Allahabad High Court, we are of the view that the President has no right to go beyond the scope of reference. For the foregoing reasons and in the int....
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....on on the P&L a/c. It was submitted that the assessee had not debited or claimed by way of deduction from its profits, the amount of customs duty of Rs. 4,59,10,736. In the P&L a/c gross receipts are shown at Rs. 46,10,07,183 towards raw materials consumed. The details as given in Sch. 4 of the P&L a/c at p. 26 are as under: "Stock as on 1-4-1989 8,29,77,253 Add: Purchases 27,46,62,599 Customs duty 15,82,96,112 Carriage inwards 1,48,64,323 ------------ 53,08,00,287 Less: Stock as on 31-3-1990 16,11,90,883 &....
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....d in taking the aid of s. 43B and adding the balance customs duty of Rs. 1,24,97,664. 6. The AO concluded in the order that the liability to customs duty had arisen when the goods entered into territorial waters or landed in India. Once the liability is there, then s. 43B can be invoked. The AO proceeded on the basis that the amount of customs duty was not paid during the relevant previous year but was claimed in the P&L a/c. As such, addition under s. 43B needs to be made. However, the amount can be allowed if it is paid before the date for filing of the return of the income under s. 139(1) for the relevant assessment year. The date for filing of the return under s. 139(1) in the case was 31st Dec., 1990. The AO took into consideration the amount paid before that date and made the addition as under: "Provision made in the accounts Rs. 4,59,10,736 Less: Paid actually before due date for filing of the return of income Rs. 3,34,13,072 &nbs....
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.... this appeal is placed before us for the purpose of passing a consequential order. Since the ground Nos. 1 and 3 were not pressed by the counsel for the assessee and the ground No. 2 in the appeal ITA No. 2943/Mad/1993 stands allowed in favour of the assessee as per the majority view. the appeal of the assessee is partly allowed. 8. In appeal, ITA No. 1968/Mad/1994, the assessee has raised the following effective grounds: (I) The CIT(A) erred in sustaining the disallowance of customs duty payable under s. 43B of the IT Act. (II) The CIT(A) erred in disallowing Rs. 1,08,515 under s. 40A(7) of the IT Act which represented gratuity appearing in the P&L a/c. (III) The lower authorities erred in charging interest under s. 234B of the IT Act without giving an opportunity to the assessee. 9. Ground No. 1: Regarding disallowance of customs duty under s. 43B of the IT Act, 1961. We have heard the learned Authorised Representative as well as the learned Departmental Representative and considered the relevant records. This ground is identical as in ITA No. 2943/Mad/1993, wherein this issue has been considered and decided as per the majority view in favour of the assessee. Accor....